Macromegas #37 - Are Fintech valuations disconnected from reality?
Is Fintech valuation disconnected from reality?
Hello Friends,
And happy Friday!
Disclaimer: I work for Checkout.com, a payments firm - analysis my own.
7 years ago, The Economist was publishing this chart:
At the time, those numbers felt big.
Today, Bullhound is publishing a similar chart:
Those figures are by quarter.
Let me bring the two on the same scale:
Can you still see the tiny chart on the left?
(The Y-axis has to be divided by 4 to adjust for the year-vs-quarter accounting.)
Interestingly, the US market is not that crushingly dominant anymore:
But what is even more fascinating is the share of payments inside Fintech overall:
And this was 2020, not 2021. Fintech & Payments market cap / valuation growth kept more or less on the same trend.
To put this into context, here is the share of all financials in the overall US market cap:
And again, this dataviz is 2.5 years old.
The consequence is that the payments industry is becoming a sector in itself, at least as far as market cap is concerned.
To finish illustrating my point, here are the latest market cap / valuations of the largest banks vs. payments companies.
(I did not include other Fintechs such as neobanks to avoid overcrowding the chart.)
I think the colour coding speaks for itself.
The question I am personally asking myself: does this reflect the true value creation of the sector to the global economy?
If one considers the fact that payments are a (the) foundation to trade, it does not seem disconnected from reality.
Financing and trade have always been the pillars of a capitalistic economy, and it does seem like most of the world is going this way now, China included.
But… I work in Fintech, so I am biased.
What is your take on this?
Thanks for reading, and have a wealthy weekend,
V